WASHINGTON (Reuters) – U.S. President Donald Trump and Chinese Deputy Prime Minister Liu will sign an initial trade agreement on Wednesday that will reduce some tariffs and see China boost purchases of US goods and services, defusing a conflict 18 months between the two of the world. larger economies
Liu said the two sides will work more closely to achieve tangible results and achieve a mutually beneficial relationship despite differences in their political and economic models, China’s official Xinhua news agency reported on Wednesday.
US officials called the deal a great victory that marked a significant change in Washington’s relations with China, but said it included a strict enforcement measure that could trigger renewed tariffs if Beijing does not keep its promises.
The Phase 1 agreement puts an end to a trade war marked by tariffs that affect hundreds of billions of dollars in goods, agitating financial markets, uprooting supply chains and slowing global growth.
Some analysts and economists have questioned whether the result of the prolonged talks justified that economic pain.
Trump and Liu, who led the Chinese side in business talks with Washington, are scheduled to sign the 86-page Phase 1 agreement at a White House event at 11:30 a.m. EST (1630 GMT) before more of 200 invited guests from business, government and diplomatic circles.
It is not clear at this time if the full document will be published on Wednesday.
Trump, who entered the White House in 2017 promising to rebalance world trade in favor of the United States, has already begun promoting the deal as a pillar in his 2020 reelection campaign, calling it “a great beautiful monster” at a rally in Toledo, Ohio last week.
“Our farmers will accept it. I keep saying,” Go buy bigger tractors, go buy bigger tractors, “Trump said.
The centerpiece of the agreement is a promise from China to buy an additional $ 200 billion in agricultural products and other US goods and services for two years. That will help reduce the US bilateral trade deficit of goods, which peaked at $ 420 billion in 2018. The United States had a small trade surplus of services with China of $ 40.5 billion in 2018.
The White House’s chief economic adviser, Larry Kudlow, told Fox News that the deal would add 0.5 percentage points to the growth of the US gross domestic product. UU. Both in 2020 and in 2021.
Kudlow said the agreement required China to buy an additional $ 75 billion in manufactured goods from the United States. UU. During the two year period. A source told Reuters this week that it would include airplanes, cars and auto parts, agricultural machinery and medical devices.
Beijing will boost energy purchases by about $ 50 billion and services at $ 40 billion, mainly in the financial sector, Kudlow said.
The Reuters source said agricultural purchases will get an increase of $ 32 billion in the two years, compared to a 2017 baseline of US exports to China.
When combined with agricultural exports of $ 24 billion in 2017, the annual increase of $ 16 billion is close to Trump’s goal of $ 40 billion to $ 50 billion in annual agricultural sales to China.
China will significantly increase US soybean imports after the Phase 1 agreement is signed, the Global Times reported Wednesday, citing comments from a senior Chinese economist in a group of state experts.
Wang Liaowei, senior economist at the National Grain and Oils Information Center of China, which is under the National Food and Strategic Reserves Administration, also told the newspaper that imports of US products such as pork and cotton could also see a jump .
Although the agreement could be a big boost for farmers, the aircraft manufacturer Boeing (PROHIBITION), US car manufacturers and heavy equipment manufacturers, some analysts question China’s ability to divert imports from other business partners to the United States.
“A radical change in Chinese spending seems unlikely to me. I have little expectations of meeting the stated objectives, ”said Jim Paulsen, chief investment strategist at Leuthold Group in Minneapolis. “But I think that all the negotiations have advanced football for both the United States and China.”
RATES TO STAY
The Phase 1 agreement, reached in December, canceled the planned US tariffs. UU. For cell phones, toys and laptops made in China and halved the tariff rate to 7.5% by approximately $ 120 billion in other Chinese products, including flat-screen TVs, Bluetooth headphones and footwear.
But it will leave in place 25% tariffs on a vast range of Chinese industrial goods and components of $ 250 billion used by US manufacturers.
US Treasury Secretary Steven Mnuchin told CNBC on Wednesday that the agreement would boost the U.S. economy and that Washington could reduce tariffs as part of a Phase 2 agreement that would address complex problems such as cybersecurity.
Mnuchin said the US relationship with China was complicated and that Washington would continue to raise humanitarian and national security concerns with Beijing in separate discussions. “You have to negotiate different pieces at different times,” he said.
He said the Chinese telecommunications equipment manufacturer Huawei Technologies Co Ltd was not a “chess piece” in economic negotiations.
China’s Global Times said Phase 2 discussions may not start soon.
There is increasing evidence that tariffs have raised input costs for US manufacturers, eroding their competitiveness.
Diesel engine manufacturer Cummins Inc (CMI.N) said Tuesday that the agreement will leave him paying $ 150 million in tariffs for engines and castings he produces in China.
The company issued a warm declaration of approval on Tuesday: “We believe this is a positive step and we remain optimistic that all parties will remain at the table to create a path to eliminate all instituted fees.”
Lighthizer and Mnuchin insisted that there were no parallel agreements to eliminate more tariffs after the US elections in November. Mnuchin reiterated on Wednesday that Trump could consider reducing tariffs if the two countries move quickly to seal a Phase 2 follow-up agreement.
BASIC ISSUES WITHOUT TOUCHING
The Phase 1 agreement includes China’s commitments to prohibit the forced transfer of US technology to Chinese companies, as well as to increase US intellectual property protections. UU.
But it fails to address the central US complaints about China’s commercial and intellectual property practices that led the Trump administration to pressure Beijing to make changes in early 2017.
The agreement does not contain provisions to curb rampant subsidies for state-owned companies, which the administration blames for excess capacity in steel and aluminum and says they threaten industries from airplanes to semiconductors.
Nor does it address the digital trade restrictions and onerous cybersecurity regulations in China that have hindered American technology companies in China.
China agreed in the Phase 1 agreement to open its financial services sector more widely to US companies and refrain from deliberately pushing down its currency to gain a commercial advantage, which led the Treasury to leave its currency manipulator label on Beijing
Additional reports by Lisa Lambert, Andrea Shalal, Echo Wang, Alexandra Alper and Herb Lash in New York, and Se Young Lee and Stella Qui in Beijing; Edition of Simon Cameron-Moore and Paul Simao